<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended July 31, 1995 Commission File Number O-7607
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FAIR GROUNDS CORPORATION
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Louisiana 72-0361770
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1751 Gentilly Blvd., New Orleans, LA 70119
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(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number including area code (504) 944-5515
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Not Applicable
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(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by a check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such report(s)), and (2) has been subject to such filing
requirements for the past 90 days.
x Yes No
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468,180 Common Shares were outstanding as of September 25, 1995
<PAGE> 2
FAIR GROUNDS CORPORATION
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet, July 31, 1995 (Unaudited)
and Balance Sheet, October 31, 1994 1
Statements of Operations and Retained
Earnings for the Three Months Ended
July 31, 1995 and 1994 (Unaudited) 3
Statements of Operations and Retained
Earnings for the Nine Months Ended
July 31, 1995 and 1994 (Unaudited) 6
Statements of Cash Flows for the Nine
Months Ended July 31, 1995 and 1994
(Unaudited) 9
Notes to Financial Statements (Unaudited) 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
</TABLE>
<PAGE> 3
PART I
FINANCIAL INFORMATION
<PAGE> 4
FAIR GROUNDS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
July 31 October 31
1995 1994
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,600,827 $8,039,310
Restricted cash 150,000 -
Investment securities - available for sale 892,686 1,376,297
Accounts receivable 721,405 691,760
Insurance proceeds receivable - 487,341
Inventory 76,827 73,858
Deferred income taxes 20,940 20,940
Refundable income taxes - 566,289
Prepaid expenses 627,313 360,387
----------- -----------
Total Current Assets 5,089,998 11,616,182
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OTHER ASSETS 35,749 34,574
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PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements 13,798,547 10,206,873
Construction in progress 8,924,814 4,723,474
Land improvements 4,219,997 4,188,282
Temporary facilities 2,679,369 2,680,917
Machinery and equipment 828,343 680,562
Automotive equipment 783,642 783,642
Furniture and fixtures 171,597 155,672
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Total 31,406,309 23,419,422
Less: accumulated depreciation
and amortization 13,431,924 11,886,137
----------- -----------
Depreciable property - net 17,974,385 11,533,285
Land 3,286,281 3,286,281
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Property - net 21,260,666 14,819,566
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TOTAL ASSETS $26,386,413 $26,470,322
=========== ===========
</TABLE>
(Continued)
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<PAGE> 5
FAIR GROUNDS CORPORATION
BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
(Unaudited)
July 31 October 31
1995 1994
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 4,150,000 $ 1,000,000
Accounts payable 1,095,542 694,827
Contracts payable 1,519,117 1,654,820
Accrued liabilities:
Deferred purses 3,428,550 5,500,485
Property taxes 126,549 300,000
Uncashed mutuel tickets 192,557 284,388
Other 241,106 247,009
Deferred revenues 49,480 53,580
----------- -----------
Total Current Liabilities 10,802,901 9,735,109
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NOTES PAYABLE - 1,000,000
DEFERRED INCOME TAXES 4,283,837 4,199,886
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TOTAL LIABILITIES 15,086,738 14,934,995
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COMMITMENTS AND CONTINGENCIES - -
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STOCKHOLDERS' EQUITY
Capital stock - no par value;
authorized 600,000 shares,
issued and outstanding
469,940 shares 1,525,092 1,525,092
Additional paid-in-capital 1,942,350 1,942,350
Retained earnings 7,947,033 8,113,858
Unrealized loss on investment
securities - available for sale (68,827) -
----------- -----------
Total 11,345,648 11,581,300
Less: treasury stock at cost,
1,760 shares (45,973) (45,973)
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TOTAL STOCKHOLDERS' EQUITY 11,299,675 11,535,327
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $26,386,413 $26,470,322
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 6
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For the Three Months Ended July 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
REVENUES
Pari-mutuel commissions $ 3,305,025 $ 3,700,579
Breakage 90,690 93,191
Uncashed mutuel tickets 102,892 153,451
----------- -----------
Total 3,498,607 3,947,221
Less: pari-mutuel tax 509,144 543,320
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Commission income 2,989,463 3,403,901
Host track fees - 32,150
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Total Mutuel Income 2,989,463 3,436,051
Concessions 239,459 236,500
Video poker (net) 163,573 194,595
Admissions (net of taxes) 102,899 34,897
Programs and forms 237,773 356,319
Miscellaneous 99,912 131,855
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Total Operating Revenues 3,833,079 4,390,217
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RACING EXPENSES
Purses 1,216,487 1,315,065
Salaries and related taxes
and benefits 905,737 929,108
Contracts and services 261,362 296,032
Host track fees 511,229 542,449
Depreciation 517,484 643,018
Cost of sales - concessions 97,082 108,487
Utilities 141,599 113,399
Repairs and maintenance 82,403 81,812
Program paper, forms and other
supplies 318,022 366,026
Advertising and promotion 72,562 68,095
Rent 66,798 62,700
Miscellaneous 98,722 60,166
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Total Racing Expenses 4,289,487 4,586,357
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</TABLE>
(Continued)
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<PAGE> 7
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (CONTINUED)
For the Three Months Ended July 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and related taxes and benefits $ 299,784 $ 305,237
Insurance 211,494 186,692
Property taxes 86,702 66,183
Legal, audit and director fees 203,615 249,290
Contracts and services 33,452 48,096
Office expenses 77,210 76,413
Miscellaneous 45,251 90,060
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Total General and
Administrative Expenses 957,508 1,021,971
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LOSS FROM OPERATIONS (1,413,916) (1,218,111)
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OTHER INCOME (EXPENSE)
Jazz and Heritage Festival income 679,492 193,909
Loss on sale of equity investments - (44,072)
Gain (Loss) on sale of investments 3,036 (15,151)
Interest expense (50,259) (50,383)
Interest income 5,934 102,349
Equity in earnings from
unconsolidated investments
in affiliates - (1,149)
Insurance related settlements 829 -
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LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (774,884) (1,032,608)
Provision for income taxes - -
----------- -----------
LOSS BEFORE EXTRAORDINARY
ITEM (per share - 1995 $(1.66),
1994 $(2.20)) (774,884) (1,032,608)
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Extraordinary item - gain from
fire (no income tax effect) - 117,474
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NET LOSS (per share - 1995
$(1.66), 1994 $(2.20)) (774,884) (915,134)
RETAINED EARNINGS,
BEGINNING OF PERIOD 8,721,917 14,608,090
CASH DIVIDENDS PAID - -
----------- -----------
RETAINED EARNINGS,
END OF PERIOD $ 7,947,033 $13,692,956
=========== ===========
</TABLE>
(Continued)
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<PAGE> 8
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (CONTINUED)
For the Three Months Ended July 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
CASH DIVIDENDS PER SHARE $ - $ -
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 469,940 469,940
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-5-
<PAGE> 9
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For the Nine Months Ended July 31, 1995 and 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
88 Days of 77 Days of
Live Racing Live Racing
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<S> <C> <C>
REVENUES
Pari-mutuel commissions $12,902,948 $13,604,838
Breakage 283,107 273,101
Uncashed mutuel tickets 215,638 275,561
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Total 13,401,693 14,153,500
Less: pari-mutuel tax 1,808,138 2,014,149
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Commission income 11,593,555 12,139,351
Host track fees 2,549,567 1,901,954
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Total Mutuel Income 14,143,122 14,041,305
Concessions 1,387,169 1,379,416
Video poker (net) 539,485 653,154
Admissions (net of taxes) 258,666 336,207
Parking 14,401 36,992
Programs and forms 1,012,862 1,155,561
Miscellaneous 498,078 506,100
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Total Operating Revenues 17,853,783 18,108,735
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RACING EXPENSES
Purses 4,947,293 5,172,088
Salaries and related taxes
and benefits 4,015,209 4,111,786
Contracts and services 1,637,396 1,429,792
Host track fees 1,011,072 1,020,384
Depreciation 1,545,787 1,519,154
Cost of sales - concessions 602,413 566,199
Utilities 469,506 584,414
Repairs and maintenance 268,842 222,811
Program paper, forms and other
supplies 1,016,823 1,111,962
Advertising and promotion 565,623 563,829
Rent 192,696 184,900
Miscellaneous 392,153 389,662
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Total Racing Expenses 16,664,813 16,876,981
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</TABLE>
(Continued)
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<PAGE> 10
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (CONTINUED)
For the Nine Months Ended July 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
88 Days of 77 Days of
Live Racing Live Racing
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<S> <C> <C>
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and related taxes
and benefits $ 957,635 $ 933,212
Insurance 644,800 650,548
Property taxes 153,761 234,911
Legal, audit and director fees 722,271 579,074
Contracts and services 135,983 121,477
Office expenses 260,939 229,940
Litigation judgment (188,109) (200,000)
Miscellaneous 235,016 234,707
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Total General and
Administrative Expenses 2,922,296 2,783,869
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LOSS FROM OPERATIONS (1,733,326) (1,552,115)
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OTHER INCOME (EXPENSE)
Jazz and Heritage Festival income 1,153,083 1,116,741
Loss on sale of equity investments - (604,362)
Gain (Loss) on sale of investments 3,036 (15,151)
Interest expense (147,968) (292,625)
Interest income 87,756 140,414
Equity in earnings from
unconsolidated investments
in affiliates - 59,849
Insurance related settlements 366,594 -
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LOSS BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (270,825) (1,147,249)
Provision for income taxes - -
NET LOSS BEFORE EXTRAORDINARY
ITEM (per share - 1995 ($(0.58),
1994 $(2.44)) (270,825) (1,147,249)
Extraordinary item - gain from
fire (no income tax effect) - 14,440,276
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CHARGE FOR CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING
FOR INVESTMENTS 104,000 -
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NET INCOME (LOSS) (per share - 1995
$(.35), 1994 $28.29) (166,825) 13,293,027
</TABLE>
(Continued)
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<PAGE> 11
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (CONTINUED)
For the Nine Months Ended July 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
88 Days of 77 Days of
Live Racing Live Racing
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<S> <C> <C>
RETAINED EARNINGS,
BEGINNING OF PERIOD 8,113,858 399,929
CASH DIVIDENDS PAID - -
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RETAINED EARNINGS,
END OF PERIOD $ 7,947,033 $13,692,956
=========== ===========
CASH DIVIDENDS PER SHARE $ - $ -
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 469,940 469,940
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-8-
<PAGE> 12
FAIR GROUNDS CORPORATION
STATEMENTS OF CASH FLOWS
For the Nine Months Ended July 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (166,825) $13,293,027
----------- -----------
Adjustments to reconcile net income
(loss) to net cash used for
operating activities:
Extraordinary item - gain from
fire - (14,440,276)
Depreciation 1,545,787 1,519,154
Provision for deferred taxes 83,951 -
Minority interest in operations -
Equity in earnings from
unconsolidated investments
in affiliates - (59,849)
Loss on sale of equity investments - 604,362
Loss on advance to affiliate - 7,500
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable (29,645) (294,281)
Insurance proceeds receivable 487,341 -
Inventory (2,969) 28,282
Prepaid expenses (266,926) 135,085
Restricted cash (150,000) (2,718,768)
Refundable income taxes 566,289 61,479
Increase (decrease) in:
Accounts payable and
accrued liabilities (6,173) 57,452
Deferred revenue (4,100) 34,220
Deferred purses (2,071,935) (1,700,922)
Litigation judgment - (200,000)
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Total adjustments 151,620 (16,966,562)
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Net cash used for operating
activities (15,205) (3,673,535)
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CASH FLOWS FROM (USED FOR)
INVESTING ACTIVITIES
Capital expenditures (7,986,887) (4,747,047)
Proceeds from sale of investment
securities - available for sale 414,784 -
Acquisition of partnership interest,
net of cash acquired - (172)
Proceeds from insurance claims - 18,838,556
</TABLE>
(Continued)
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<PAGE> 13
FAIR GROUNDS CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
For the Nine Months Ended July 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
Payments to vendors on insurance claims - (138,990)
Proceeds from sale of equity investments
in affiliates - 535,000
Payment to affiliate for sale
of investments - (214,000)
Repayments on loans to affiliates - 2,802
Deposits (1,175) (790)
----------- -----------
Net cash provided by (used for)
investing activities (7,573,278) 14,275,359
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings $ 3,150,000 $ 1,000,000
Principal repayments of long term
borrowings - (5,000,000)
Repayments of short-term borrowings (1,000,000) (777,777)
---------- ----------
Net cash (used for) provided by
financing activities 2,150,000 (4,777,777)
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NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (5,438,483) 5,824,047
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 8,039,310 4,368,034
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 2,600,827 $10,192,081
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 147,968 $ 292,625
=========== ===========
NON-CASH ACTIVITY:
Net assets destroyed by fire $ - $ 4,259,290
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 14
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended July 31, 1995 and 1994
(Unaudited)
NOTE 1 - EXTRAORDINARY ITEM - THE DECEMBER 17, 1993 FIRE
On December 17, 1993, a fire completely destroyed the grandstand area at the
Fair Grounds Race Course. Included in that area was the grandstand with a
seating capacity of approximately 10,000, the racing paddock, and substantially
all of the administrative, racing operations and other offices of the Company.
Also destroyed were numerous racing artifacts, computer, printer, and
totalisator equipment, and the Company's financial, operating, personnel and
other records. The clubhouse area, which seats approximately 2,500 persons was
not destroyed, but sustained substantial water and smoke damage, which has
rendered this facility useless. As a result of the fire, the Company and its
tele-tracks were forced to cease operations for ten racing days until temporary
facilities could be installed. Temporary facilities were installed at an
aggregate cost of approximately $2.68 million. The Company reopened its
tele-track facilities on December 29, 1993 and resumed live racing operations
on January 5, 1994.
The net book value of assets destroyed in the fire was approximately $4.5
million. The Company believes that its property and casualty insurance
policies provide coverage in the aggregate amount of approximately $34 million
for buildings, contents, fixtures, equipment, items of personal property, loss
of income from operations ("business interruption"), and loss of works of art.
The Company submitted claims to its insurance carriers and to date has
recovered an aggregate of $19,478,791. The Company has filed a civil action
against certain of its insurance carriers to recover an additional approximate
$14.7 million. (See Note 2 below as to fire related litigation.)
As a result of the fire, the Company recorded in the nine months ended July 31,
1994 an extraordinary gain of $14.4 million, resulting from insurance proceeds
in excess of the net book value of the assets destroyed by the fire.
At October 31, 1993, the Company owed, in the aggregate, the principal amount
of $7,000,000 to Louie J. Roussel, III and Victory Life Insurance Company, who
held collateral mortgages on the Company's equipment and real property as
security for the debt. As a result of the fire, Mr. Roussel, III and Victory
Life Insurance Company renegotiated the indebtedness and during 1994, the
Company paid $5,000,000 of the debt using proceeds of the Company's fire
insurance. The Company was scheduled to pay an additional $1 million by March
31, 1995, however, a verbal agreement was made whereby Mr. Roussel agreed to be
paid the remainder of the note balance out of the proceeds of the FNBC
financing as discussed further in Note 2 below.
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<PAGE> 15
NOTE 2 - COMMITMENTS AND CONTINGENCIES
FIRE RELATED LITIGATION
The Company is a party to a number of legal proceedings which have arisen as a
result of the December 1993 fire or in connection with the Company's efforts to
collect insurance proceeds after the fire. The following is a brief
description of such fire-related proceedings:
1. On May 14, 1994 the Company filed an action in the 24th Judicial District
Court in the State of Louisiana against Travelers Indemnity Company of
Illinois ("Travelers"), Powell Insurance Agency and others. The Company
contends that the insurance policy provided by Travelers provides the
Company with blanket coverage in the amount of $24.1 million in excess of
the $10 million of underlying coverage provided by Allianz Underwriters
Insurance Company ("Allianz") and Royal Indemnity Company ("Royal");
accordingly, the Company maintains that Travelers is liable for the
difference between $24.1 million and the amount already paid
(approximately $9.4 million), plus statutory penalties of 10% of the
amount not paid, interest, attorney's fees and costs. The Company further
contends that, in the event the court determines that the amount of
coverage is less than that claimed by the Company, then Powell Insurance
Agency, Cooney, Rikard & Curtain, Inc., and their respective insurers are
liable to the Company for any damages. Travelers' position is that the
excess policy did not provide blanket coverage, and that its liability
under such policy is limited to the amount which it has already paid.
Travelers filed a separate action in June 1994 in the U.S. District
Court for the Eastern District of Louisiana, asking for a declaratory
judgment that the policy did not provide blanket coverage. The state court
proceedings were temporarily stayed; however, the federal court action has
now been dismissed and the state court action is proceeding.
2. The Company filed an action against Allianz in March 1994 in the Civil
District Court for the Parish of Orleans, State of Louisiana. Allianz
subsequently removed the action from state court to the United States
District Court for the Eastern District of Louisiana. The Company
contended that Allianz, which was the Company's primary property insurer,
failed to pay the policy benefits of $5 million on a timely basis, thereby
subjecting it to a statutory penalty of 10% of the amount not paid,
interest, attorney's fees and costs. The Company also alleged that
Allianz acted in bad faith in its handling of the claim. Allianz denied
the Company's allegations. The case was scheduled for trial on April 3,
1995. However, in March 1995, the parties settled their differences
pursuant to an agreement whereby Allianz without admitting liability, paid
an agreed upon amount to the Company.
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<PAGE> 16
3. The Company filed an action against Royal in December 1994, in the U.S.
District Court for the Eastern District of Louisiana, alleging that Royal
is also subject to statutory penalties of 10% of the amount not paid on
time, interest, attorney's fees and costs on account of delays in paying
$5,000,000 of proceeds to the Company. Royal has denied liability. The
case is scheduled for trial in November 1995.
4. The Company filed an action in December 1994, in the Civil District Court
for Orleans Parish, against ADT Security Systems, the company which
provided and maintained the fire alarm system at the Fair Grounds Race
Course, and other defendants. The complaint seeks unspecified damages,
not otherwise compensated for by insurance, that were allegedly caused by
the negligence of one or more of the defendants.
5. The Company is a defendant, along with its general liability insurance
carrier, United National Insurance Company, in a civil action filed in
December 1994 in the United States District Court for the Eastern District
of Louisiana by St. Paul Mercury Insurance Company, the insurer for
AutoTote. The complaint alleges that such insurance company is subrogated
to the rights of AutoTote to collect damages, and that it has paid
AutoTote in excess of $1 million for the loss of totalisator equipment at
the Fair Grounds Race Course which was destroyed in the fire.
Subsequently, United has filed suit against the Company seeking a
declaratory judgment that the subrogation claim and certain other third
party claims are not covered by United's general liability policy. The
Company filed a counter claim seeking a ruling that such coverage exists.
Both cases are scheduled for trial in February 1996.
As to items 1, 3, 4 and 5 described above, there can be no assurance that the
Company will be successful in any of its claims or contentions. Accordingly,
no assurance can be given that additional recoveries of insurance proceeds, if
any, will reimburse the Company adequately for the loss or destruction of its
property in the fire.
Except as described above, there are no material pending legal proceedings,
other than ordinary routine litigation incidental to its business, to which the
Company is a party or of which any of its property is the subject.
CONSTRUCTION FINANCING
During 1994, the Louisiana legislature passed, and Governor Edwards signed, an
act which provides that owners of video poker devices that are located in
licensed establishments owned or operated by licensed racing associations
eligible for emergency relief under the statute are exempt from the franchise
payment otherwise due under the Video Draw Poker Devices Control Law for a
period not to exceed 15 years. The amount of the franchise payment which
otherwise would have been paid to the State of Louisiana during the exemption
period is to be remitted directly to the licensed racing association, in an
amount up to $2.5 million annually, and such
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<PAGE> 17
funds are to be used for providing emergency relief to the licensed racing
association. The use of funds by the licensed racing association is subject to
review and oversight by a legislative committee, which may reduce the amount of
the authorized exemption if the racing association cannot satisfy the committee
that the exemption is necessary for its ongoing economic viability. The
legislation also provides that at such time as the emergency relief granted
under the act exceeds the required annual debt service on any indebtedness
incurred to address the emergency situation, such indebtedness not to exceed
$25 million, the excess of such funds is to be remitted to the state treasury.
The total amount of funds required for the construction of the new tele-track
and grandstand facility is approximately $27.5 million. Of such total amount,
the Company had, as of July 31, 1995, incurred expenses of approximately $12.2
million to complete debris removal, construct the tele-track facility and
commence construction of the grandstand facility.
As previously reported, the Company had received and accepted a commitment
letter dated February 6, 1995 from First National Bank of Commerce of New
Orleans (FNBC) for a non-revolving line of credit to be used as an interim
construction loan, convertible to a term loan. The principal amount of the
loan was to have been $17.5 million. The commitment from FNBC provided that
the interim construction loan was to have closed on or before March 31, 1995;
however, the parties agreed to an extension. As of this date, the Company and
FNBC have not closed the loan. As a result, construction on the new
grandstand/clubhouse facility has been curtailed.
The date for the closing of the loan from FNBC has been delayed until after the
Louisiana legislative session which begins in April 1996. FNBC has indicated
that the principal reason for the delay is FNBC's concern with restrictions on
and the possible elimination of video poker gaming in the State of Louisiana.
It is intended that the video poker franchise tax monies generated by the
Company and its teletracks would be used by the Company for the repayment of
the FNBC loan, in accordance with the 1994 emergency tax relief legislation
described above; accordingly, any change in the video poker gaming laws which
restricts or limits video poker as a source of revenue may have an adverse
impact on such source of repayment.
At July 31, 1995, the Company owed an aggregate principal amount of $2 million
to Louie J. Roussel, III, who holds a collateral mortgage on the Company's real
property and equipment. Of such principal amount, $1 million was due and
payable in March 1995 and $1 million is due and payable in March 1996. Mr.
Roussel, III and the Company agreed earlier in 1995 that the entire balance of
such indebtedness would be paid from the proceeds of the permanent FNBC
financing described herein. However, the Company has not discussed with Mr.
Roussel, III any alternative arrangements in the event such financing is not
forthcoming.
On July 17, 1995, FNBC provided a bridge loan to the Company in the amount of
$2,150,000 for construction costs relating to the rebuilding of the grandstand
and clubhouse facilities. The loan is
-14-
<PAGE> 18
a variable rate loan with interest at 0.5% over the New York prime rate. The
loan is due and payable January 17, 1996. Loan proceeds in the amount of
$150,000 are restricted and were placed in an escrow account for the purpose of
funding future loan related costs. To date the Company has repaid
approximately $655,000 of such bridge loan, utilizing revenues from video poker
operations and the tax relief described above.
The Company and FNBC have continued their discussions concerning the permanent
loan described above, and also have been discussing the possibility of FNBC
providing additional bridge financing of up to $10 million in order for the
Company to meet the construction obligations incurred to date, replenish
operating monies used by the Company for construction purposes and pay its
indebtedness to Mr. Roussel, III. As a result of such continuing discussions,
on November 7, 1995, the Company borrowed $4 million from FNBC and utilized
such proceeds to replenish operating monies, as described above. The loan
bears interest at the rate of 9.25% per annum and is payable on January 17,
1996. There can be no assurance that any additional bridge loans in excess of
the amounts already borrowed will be made available by FNBC. If the Company is
unable to obtain such bridge financing from FNBC, there may be no other
financing alternatives available.
Having obtained the bridge financing described above, the Company has commenced
the racing season and intends to discuss with Mr. Roussel, III and the general
contractor for the grandstand construction project the possibility of reaching
an agreement concerning a payment schedule with respect to the amounts owed to
such persons. There can be no assurance that any such understanding or
agreement can be reached.
The curtailment of construction of the Company's new grandstand facility will
cause the Company to hold its live racing meet for the 1995-96 season at its
new off-track and temporary tent facilities. The Company anticipates that
revenue generated from its upcoming live racing meet, together with a $1
million advance anticipated to be received in January 1996 from Video Services,
Inc., will be sufficient to continue operations under current conditions
through the end of the fiscal year which ends October 31, 1996. Additionally,
due to the delay in construction of the new grandstand/clubhouse facility,
management has implemented various cost cutting measures which the Company
anticipates will save approximately $500,000 in expenses.
The Company is in the process of opening a new teletrack facility in the
Metairie area. The new location will have approximately 50 video poker
machines, and is anticipated to be opened in November 1995. The Company
believes that this location will contribute net income to its overall
operations.
NOTE 3 - NOTES PAYABLE
On July 17, 1995, First National Bank of Commerce of New Orleans provided a
bridge loan to the Company in the amount of $2,150,000 for construction costs
relating to the rebuilding of the grandstand and clubhouse facilities. The
loan is a variable rate loan, with
-15-
<PAGE> 19
interest at 0.5% over the New York prime rate. The loan is due January 17,
1996. The bridge loan is currently being repaid with video poker franchise tax
monies as provided for under the 1994 Emergency Relief Act discussed herein.
Loan proceeds in the amount of $150,000 are restricted and were placed in an
escrow account for the purpose of funding future loan related costs.
At July 31, 1995, the Company owed an aggregate principal amount of $2 million
to Louie J. Roussel, III, who holds a collateral mortgage on the Company's real
property and equipment. The Company has agreed with Mr. Roussel, III that the
entire balance of such indebtedness will be paid from the proceeds of the FNBC
financing.
On November 7, 1995, the Company borrowed $4 million from FNBC and utilized
such proceeds to replenish operating monies, as described above. The loan
bears interest at the rate of 9.25% per annum and is payable on January 17,
1996.
-16-
<PAGE> 20
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
COMPARISON OF THE THREE MONTHS ENDED JULY 31, 1995 AND 1994
REVENUES. During the quarters ended July 31, 1995 and 1994, the Company
derived its pari-mutuel income and other operating revenues by operating
tele-tracks for off-track wagering.
The Company's loss for the quarter ended July 31, 1995 was $774,884 compared to
a loss of $915,134 for the quarter ended July 31, 1994. The decline in loss
for the quarter was due to an increase in other income partially offset by a
decline in income from operations.
The decline in income from operations for the current quarter was primarily the
result of declines in pari-mutuel wagering and attendance from the comparable
fiscal 1994 quarter. Comparative pari-mutuel wagering and attendance figures
for the quarters ended July 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Total pari-mutuel wagering $16,702,466 $18,013,883
=========== ===========
Total attendance 92,758 110,115
=========== ===========
</TABLE>
The declines in pari-mutuel wagering and attendance in the current quarter are
partially attributable to eight (8) fewer days of operation at the Company's
facility during the month of May as a result of the timing of the New Orleans
Jazz and Heritage Festival and continued competition from other local gaming
venues.
As a result of the decline in wagering and attendance in the current quarter,
most of the components of the Company's operating revenues declined.
Admissions revenue, however, increased due to the opening of the Company's new
tele-track facility in December 1994. The Company now charges $1.00 for
general admission and $2.00 for clubhouse admission in the new facility. In
the previous comparable quarter, the Company offered its patrons free admission
to the temporary facility.
RACING EXPENSES. Race related expenses declined $296,870 or 6.5% from the
comparable quarter in 1994 as a result of a decline in wagering activity and as
a result of a decline in depreciation expense in the current quarter. During
the 1994 fiscal quarter, the Company made various adjustments to its
depreciation expense as the Company's accounting records were reconstructed
subsequent to
-17-
<PAGE> 21
the December 17, 1993 fire.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the three
months ended July 31, 1995 declined $64,463 or 6.3% from the previous
comparable quarter due to declines in legal, audit, and director fees and
miscellaneous expense. These declines were partially offset by an increase in
insurance expense and an increase in property tax expense.
OTHER INCOME. Other income for the current quarter increased $453,529 or
244.5% from the 1994 fiscal quarter primarily due to an increase in Jazz and
Heritage Festival income of $485,583 or 250%. The significant increase in
festival income is the result of the timing of the Jazz and Heritage Festival.
For the quarter ended July 31, 1995, the Company reported income for four days
of Jazz Festival activity compared to one day of activity in the quarter ended
July 31, 1994.
COMPARISON OF THE NINE MONTHS ENDED JULY 31, 1995 AND 1994
REVENUES. During the nine-month periods ended July 31, 1995 and 1994, the
Company derived its pari-mutuel income by conducting live racing meets of 88
and 77 days, respectively, and in the operation of tele-tracks for off-track
wagering. The significant increase in the number of racing days in the current
period is attributable to the suspension of operations during the racing season
in the previous comparable period in the prior fiscal year as a result of the
December 17, 1993 fire.
The Company's loss for the nine months ended July 31, 1995 was $166,825
compared to net income of $13,293,027 for the nine months ended July 31, 1994.
The significant decrease in net income for the nine months ended July 31, 1995
was the direct result of the Company's recognition of an extraordinary gain in
the previous fiscal period attributable to the Company's claims for insurance
proceeds arising from the December 1993 fire. The Company recorded in the nine
months ended July 31, 1994, an extraordinary gain of $14.4 million, comprised
of insurance proceeds of $18,838,556, partially offset by a loss of $4,259,290,
which was the net book value of assets destroyed by the fire.
The Company's loss before extraordinary item for the nine months ended July 31,
1995 was $270,825 as compared to a loss of $1,147,249 for the nine months ended
July 31, 1994. The reduction in the amount of the loss was primarily the
result of an increase in host track fee revenue and an increase in other
income.
For the nine months ended July 31, 1995, the Company reported a
-18-
<PAGE> 22
5.2% decline in total pari-mutuel wagering and a 7.2% decline in total
attendance from the nine months ended July 31, 1994. Comparative pari-mutuel
wagering and attendance figures for the nine months ended July 31, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Pari-mutuel wagering
On-track $25,134,326 $26,110,964
Off-track 39,162,892 41,684,897
----------- -----------
Total wagering $64,297,218 $67,795,861
=========== ===========
Total attendance 361,293 389,407
=========== ===========
</TABLE>
The declines in the Company's pari-mutuel wagering and attendance in the
current nine months contributed to the declines in all components of the
Company's operating revenues, with the exception of host track fee revenue.
Host track fee revenue increased $647,613 or 34% from the previous comparable
period due to a significant increase in out-of-state simulcasting of the
Company's live races. For the current year's racing meet, the Company reported
$92 million in out-of-state simulcasting compared to $42 million for the
previous year's racing meet.
RACING EXPENSES. Racing expenses for the nine months ended July 31, 1995
declined $212,168 or 1.3% from the nine months ended July 31, 1994. Many
components of race related expenses fluctuated unfavorably in the current
period, including contracts and services, concessions cost of sales, and
repairs and maintenance. Contracts and services for the current period
increased $207,604 or 14.5% from the previous comparable period due to the
eleven additional race days and an increase in services related to the
temporary facilities. Concessions cost of sales as a percent to revenue
increased from 41% to 43.4% in the current period.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the nine
months ended July 31, 1995 increased $138,427 or 49% from the previous
comparable period in fiscal 1994 due to an increase in legal, audit and
director fees, an increase in office expense, and an increase in contracts and
services. These increases were partially offset by a decline in property taxes
in the current quarter. Legal, audit and director fees increased $143,197 or
24.7% primarily due to litigation with the Company's insurance carriers.
Contracts and services increased $14,506 or 11.9% due to outside services
related to obtaining financing for construction. Office expense increased
$30,999 or 13.4% due to an increase in telephone expense related to increased
out-of-state activity. Property tax expense declined $81,150 or 34.5% due to a
partial
-19-
<PAGE> 23
reversal in the current period of an estimated amount of property tax expense
for the fiscal year ended October 31, 1994.
OTHER INCOME (EXPENSE). For the nine months ended July 31, 1995, the Company
realized an increase in other income of $1,057,635 or 261% from the comparable
period in the previous fiscal year. The increase was primarily the result of
the Company's recognition of a $604,362 loss on sale of equity investments for
the nine months ended July 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $5,438,483 during the nine months ended
July 31, 1995, compared to an increase in cash of $5,824,047 during the
comparable period in the previous fiscal year. The decrease in cash and cash
equivalents for the nine months ended July 31, 1995 was the result of cash used
for investing activities of $7,573,278 partially offset by cash provided from
financing activities of $2,150,000. The cash used for investing activities was
for capital expenditures for the new tele-rack facility, as well as capital
expenditures for the new grandstand and clubhouse facility. Cash provided from
financing activities of $2,150,000 was the result of a bridge loan to the
Company from First National Bank of Commerce of New Orleans (FNBC) as discussed
below and in Note 3 to the financial statements included herewith.
As of September 15, 1995, the Company had received $19,478,791 in insurance
proceeds resulting from fire loss claims submitted to the Company's insurance
carriers. As previously reported, the Company has filed suit against certain
of its insurance carriers seeking to recover an additional $14.7 million under
its insurance policies.
The Company has completed the construction of a tele-rack facility at the Fair
Grounds Race Course at a cost of $3.2 million and has begun construction on the
new grandstand and clubhouse facility. The total costs of the facility,
together with furniture, fixtures, equipment, and certain fees and permit
costs, is currently anticipated to be approximately $24.3 million, in addition
to the cost of the tele-track facility. As of July 31, 1995, the Company had
spent approximately $9.0 million in connection with the construction of the new
grandstand facility. It is presently anticipated that the Company will require
approximately $15.3 million in additional funds to complete such construction.
(See the discussion below with respect to the current status of the
construction.)
During 1994, the Louisiana legislature passed, and Governor Edwards
-20-
<PAGE> 24
signed, an act which provides that owners of video poker devices that are
located in licensed establishments owned and operated by licensed racing
associations eligible for emergency relief under that act are exempt from the
franchise payments otherwise due under the video poker law for a period not to
exceed 15 years. The amount of the franchise payments which otherwise would
have been paid to the State of Louisiana to be remitted directly to the
licensed racing association, in an amount up to $2.5 million annually, and such
funds are to be used for providing emergency relief to the licensed racing
association. The use of funds by the licensed racing association is subject to
review and oversight by a legislative committee, which may reduce the amount of
the exemption if the racing association cannot satisfy the committee that the
exemption is necessary for its ongoing economic viability. In December 1994,
the Company became eligible for emergency relief under such legislation.
As previously reported, the Company had received and accepted a commitment
letter dated February 6, 1995 from FNBC, for a non-revolving line of credit to
be used as an interim construction loan, convertible to a term loan. The
principal amount of the loan was to have been $17.5 million. The commitment
from FNBC provided that the interim construction loan was to have closed on or
before March 31, 1995; however, the parties agreed to an extension. As of this
date, the Company and FNBC have not closed the loan. As a result, construction
on the new grandstand/clubhouse facility has been curtailed.
The date for the closing of the loan from FNBC has been delayed until after the
Louisiana legislative session which begins in April 1996. FNBC has indicated
that the principal reason for the delay is FNBC's concern with restrictions on
and the possible elimination of video poker gaming in the State of Louisiana.
It is intended that the video poker franchise tax monies generated by the
Company and its teletracks would be used by the Company for the repayment of
the FNBC loan, in accordance with the 1994 emergency tax relief legislation
described above; accordingly, any change in the video poker gaming laws which
restricts or limits video poker as a source of revenue may have an adverse
impact on such source of repayment.
At July 31, 1995, the Company owed an aggregate principal amount of $2 million
to Louie J. Roussel, III, who holds a collateral mortgage on the Company's real
property and equipment. Of such principal amount, $1 million was due and
payable in March 1995 and $1 million is due and payable in March 1996. Mr.
Roussel, III and the Company agreed earlier in 1995 that the entire balance of
such indebtedness would be paid from the proceeds of the permanent FNBC
financing described herein. However, the Company has not discussed with Mr.
Roussel, III any alternative arrangements in the event
-21-
<PAGE> 25
such financing is not forthcoming.
On July 17, 1995, FNBC provided a bridge loan to the Company in the amount of
$2,150,000 for construction costs relating to the rebuilding of the grandstand
and clubhouse facilities. The loan is a variable rate loan with interest at
0.5% over the New York prime rate. The loan is due and payable January 17,
1996. Loan proceeds in the amount of $150,000 are restricted and were placed
in an escrow account for the purpose of funding future loan related costs. To
date the Company has repaid approximately $655,000 of such bridge loan,
utilizing revenues from video poker operations and the tax relief described
above.
The Company and FNBC have continued their discussions concerning the permanent
loan described above, and also have been discussing the possibility of FNBC
providing additional bridge financing of up to $10 million in order for the
Company to meet the construction obligations incurred to date, replenish
operating monies used by the Company for construction purposes and pay its
indebtedness to Mr. Roussel, III. As a result of such continuing discussions,
on November 7, 1995, the Company borrowed $4 million from FNBC and utilized
such proceeds to replenish operating monies, as described above. The loan
bears interest at the rate of 9.25% per annum and is payable on January 17,
1996. There can be no assurance that any additional bridge loans in excess of
the amounts already borrowed will be made available by FNBC. If the Company is
unable to obtain such bridge financing from FNBC, there may be no other
financing alternatives available.
Having obtained the bridge financing described above, the Company has commenced
the racing season and intends to discuss with Mr. Roussel, III and the general
contractor for the grandstand construction project the possibility of reaching
an agreement concerning a payment schedule with respect to the amounts owed to
such persons. There can be no assurance that any such understanding or
agreement can be reached.
The curtailment of construction of the Company's new grandstand facility will
cause the Company to hold its live racing meet for the 1995-96 season at its
new off-track and temporary tent facilities. The Company anticipates that
revenue generated from its upcoming live racing meet, together with a $1
million advance anticipated to be received in January 1996 from Video Services,
Inc., will be sufficient to continue operations under current conditions
through the end of the fiscal year which ends October 31, 1996. Additionally,
due to the delay in construction of the new grandstand/clubhouse facility,
management has implemented various cost cutting measures which the Company
anticipates will save approximately $500,000 in expenses.
-22-
<PAGE> 26
The Company is in the process of opening a new teletrack facility in the
Metairie area. The new location will have approximately 50 video poker
machines, and is anticipated to be opened in November 1995. The Company
believes that this location will contribute net income to its overall
operations.
-23-
<PAGE> 27
PART II
OTHER INFORMATION
-24-
<PAGE> 28
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of shareholders held on May 16, 1995, the Company's
shareholders elected directors and also ratified the Board of Directors'
appointment of Rebowe & Company, Certified Public Accountants (A Professional
Corporation) as independent accountants, with 345,965 shares voted for
ratification, no shares voted against and no abstentions. The voting with
respect to the nominees for election as directors was as follows:
<TABLE>
<CAPTION>
Votes
-------------------------
Nominee For Withheld Abstentions
------- ------- -------- -----------
<S> <C> <C> <C>
Katherine F. Duncan 345,965 0 0
Richard Katcher 345,965 0 0
Bryan G. Krantz 345,965 0 0
Marie G. Krantz 345,965 0 0
Ronald S. Maestri 345,965 0 0
Charmaine R. Morel 345,965 0 0
Donald L. Peltier 345,965 0 0
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
None.
-25-
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FAIR GROUNDS CORPORATION
---------------------------------
(Registrant)
Date: 12/1/95 By: /s/ Bryan G. Krantz
----------------------------- ------------------------------
Bryan G. Krantz
President
Date: 12/1/95 By: /s/ Gordon M. Robertson
----------------------------- ------------------------------
Gordon M. Robertson
Chief Financial Officer
-26-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> JUL-31-1995
<CASH> 2,601
<SECURITIES> 893
<RECEIVABLES> 721
<ALLOWANCES> 0
<INVENTORY> 77
<CURRENT-ASSETS> 5,090
<PP&E> 31,406
<DEPRECIATION> 13,432
<TOTAL-ASSETS> 26,386
<CURRENT-LIABILITIES> 10,803
<BONDS> 0
<COMMON> 1,525
0
0
<OTHER-SE> 11,300
<TOTAL-LIABILITY-AND-EQUITY> 26,386
<SALES> 13,402
<TOTAL-REVENUES> 17,854
<CGS> 0
<TOTAL-COSTS> 16,665
<OTHER-EXPENSES> 2,923
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 148
<INCOME-PRETAX> (271)
<INCOME-TAX> 0
<INCOME-CONTINUING> (271)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 104
<NET-INCOME> (167)
<EPS-PRIMARY> (.35)
<EPS-DILUTED> (.35)
</TABLE>
